Securing a strong financial future requires making smart investments. With so many ways to approach investing, it can be difficult to find the strategies that work best for you. Hiring an investment manager or financial advisor will help, but it is important that you understand basic investment strategies that can apply to anyone — no matter their stage in life or financial standing.
Adhere to Your Risk Tolerance
Every investment you make means taking on some level of risk. Some investment vehicles are riskier than others, so it’s essential you do your research and understand your risk tolerance prior to making any decisions. Your risk tolerance depends on factors such as your age, the amount of investment capital you have, and your overall goals. For example, when you reach retirement, you may have a lower risk tolerance, because it can be more difficult to recover from poor performing investments. In contrast, younger people can typically take on more risk, because they have more time to recover from a loss. It is important to remember that taking risks is necessary to receive high returns. Working with an investment professional can help you determine the amount of risk you are willing and able to take, while adjusting your investments accordingly.
Diversify Your Investments
One strategy that is almost universally accepted by financial professionals is the importance of diversifying your investments. Having a diversified portfolio means you are invested in a variety of different industries, asset classes and categories. While overconcentration into one sector can seem appealing due to the potential for high returns, it can also back you into a corner if those investments perform poorly. Diversification on the other hand, helps mitigate this risk. If you lose on investments in one asset class, your portfolio is not as negatively impacted because you have other investments in better performing industries. While this strategy does not completely eliminate risk, it can lead to a better chance of meeting your return goals.
Use an Active and Passive Approach
Taking an active approach to investing is a hands-on strategy that usually requires frequent buying and selling. When you invest in an actively managed fund, the goal is to outperform the market and because of this, investors typically choose to enlist the help of a manager who will buy and sell stock, bonds and other securities based on market trends and expertise. While this approach can bring higher returns, one drawback is that active investing often means you are acquiring higher fees. Passive investing in contrast, is more of a hands-off and slow-growth strategy, and investments are typically made to follow a market index, with long-term potential in mind.
The type of approach you choose can depend on a variety of factors like your age, your current financial status and your overall investment objectives. At Trust Point, we believe that having both active and passive funds is the best way to balance costs and returns. This hybrid method diversifies your portfolio, can reduce your costs and fees, and provides potential tax-efficiency benefits.
Take Emotion Out of Investing
Making decisions about your wealth can be stressful and emotionally taxing. When it comes to investing in a complicated and ever-changing market, it is common for psychological factors to impact your decisions. Investing too emotionally though, can lead to irrational, short-term decisions that negatively impact your portfolio and long-term returns. The best way to avoid this is by working with a financial partner that can keep you from making investment decisions based on emotions, rather than research and analysis.
Work with Trust Point
At Trust Point, we work to provide financial guidance and investment advice that will serve you and your unique goals. Our team follows a rigorous process for our investment selection, we meticulously research and review every investment opportunity through meetings and interviews, and use investment strategies that fit your lifestyle and goals. From there, we continuously monitor your portfolio by reviewing your returns and keeping an open line of communication. When you work with a Trust Point professional, you are working with someone who has you and your family’s best interest at the forefront of every decision.
To learn more about Trust Point’s investment services and to enlist the help of one of our professionals, send us a message or call us at 800-368-9474.